Essay in International Business

“Whatever recent developments have occurred in international trade theory, in reality, the competitiveness of a location reflects the availability of resources in that location” Discuss this statement in the light of contemporary patterns of world trade and in the light of contemporary theories of trade.

Introduction

International trade patterns have changed significantly over the last three decades. In the past, developed nations, such as the United States, Great Britain, France and Germany were leaders in export. Most forecasts now predict a rapid rise in share of world output exported by developing nations such as China, India, Indonesia, Thailand, South Korea, Mexico and Brazil. To support the argument, the World Trade Organization chief statistician Hubert Escaith (2012) admits that there has been significant progress for developing nations over the recent years according to international trade statistics. Therefore, different authors have tried to measure international trade patterns in a variety of ways by international trade theories. A considerable amount of literature has been published on international trade.

International trade theories started their path in England in 16th century with mercantilism. Theory suggests that export should exceed import. However, absolute advantage theory by Adam Smith and comparative advantage theory by David Ricardo shows that all countries can benefit by free trade. Many economists argue that free market economic system is good for innovation and entrepreneurship. In fact, the classical trade theories mentioned above cannot answer contemporary patterns of trade. Thus, theories that were established after the classical trade theories need to be discussed for broader understanding.

Furthermore, the path of international trade theory discussed by many prominent contemporary economists helps to understand deeply the patterns of international trade. The latest patterns